Bank of America Sheds $22 Billion in Value; Consumer Prices Ramp Up

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This is Bloomberg Businessweek Daily. Reporting from the magazine that helps global leaders stay ahead. With insight on the people, companies, and trends shaping today's complex economy. Plus, global business, finance, and tech news as it happens. The Bloomberg Businessweek Daily Podcast. With Carol Masser and Tim Stenebeck.

Turmoil at B of A, pushing shares to their worst earnings day in more than a decade, piling on the pain for a bank that's already been the worst performer among the six biggest US banks in the past five years.

It's also a major black eye for CEO Brian Moynihan. the lawyer turned executive who has led the bank, Tim, for nearly two decades.

Shares of Bank of America trading lower after its earnings update showed stock and fixed income traders missed estimates. The bank's results also hurt by a charge tied to regulatory penalties over money laundering and sanctions violations.

Well, right now we head to Charlotte, North Carolina, the home of Bank of America, and that's where CEO Brian Moynihan is sitting down with Bloomberg's John Farrow.

John.

We'll start here in New York. Carol, thank you very much, and thank you very much to Tim as well. I'm pleased to say that the Bank of America chairman and CEO, Brian Moynihan, joins us now for more. Brian, welcome to the program. It's good to see you, as always. There's a couple of different stories in the mix today. We've got to start with that chunky fine from Treasury, a big regulatory fine that we can address with you straight away this afternoon. The language from Treasury is quite damning, Brian.

What's your interpretation of what went wrong here?

Look, at the end of the day, we had an examination a few years ago. We got a cease and desist order. We have to do that work. This fine relates to that effort. There was a debate a bit about what exactly we had to do. That's resolved. It's behind us. The billion two is going through. We've been expending the money in the run rate already to do the remediation because a few months ago, we started picking up the cost structure and putting it in. So we We'll get it done. We take it seriously. And I think as time goes by, people will understand it better.

I imagine you want to draw a line under the whole issue, but just to extend the conversation on this particular topic just a little bit further, Brian, I imagine you also don't want to be drawn into how much of this has already been completed, what is left to really fix here. But I think for this afternoon, given where the stock is, there needs to be some confidence for investors that the costs associated with remedying this are in the baseline and there won't be any more surprises in the future. How confident can investors be that that's the case?

For the operational cost to do the work, we've added a lot of expense, and it's in our baseline, and we continue to operate that. And again, it's a few hundred million dollars in the quarter here, and so it's not of additional expense that we've been running through. So we've got an understanding and clear path forward. We've been completing a lot of tasks, frankly, over the last several months, and we'll continue to finish it up. It came a lot about how how the thresholds are set and things like that. There's a lot of technical discussion about it.

But at the end of the day, we understand what we need to do. We're doing it and we'll deliver it.

Brian, could you take us inside the bank and just discuss accountability just a little bit? What are discussions like with the board around accountability? And would you be open to aligning remuneration with the resolution of some of these difficulties?

We have accountability for everything we do in a company, including a fine. We've got, you know, gone through before in 2004 there was accountability for the examination the order already taken and so we'll the board will decide that when we get to the end of the year.

Brian, of course, this is overshadowing what was otherwise a mixed quarter for the bank. Trading, capital markets, investment banking, that's one side of the business. I actually wanted to start with the Main Street side of the business, which seems to be performing quite well. And I think otherwise, we'd be talking about the fact that net interest income, the path for net interest income looks pretty good from here.

Can we just sit on that for a moment, Brian? Do you see the path to that improving from here even more as durable?

Yeah, so we basically were up $ 400 million in the second quarter, the third quarter. The market's contribution, which other people have too, it was basically flat. And so as you look forward, what's happening is the core loan book is growing, the core deposit book's growing. Our total cost of deposit is 149 basis points. That grew 2% year over year, and the non-interest bearing grew 5%. The loans grew 6% or 7%, and the core businesses grew 5%.

Commercial business grew 8%. That's great activity. It also bodes well for the U.S. economy because companies are borrowing. But if you look at that NII, what we said back last fall was this year, 26 would be 5% to 7% increase over 25. We've raised that and now said we confirm 8% for the year. And then at that same time, we sort of said 5% to 7% for 27, and we just raised that to 8% plus. And that is just the stair step, climbing those stair steps of more loans, more deposits, and then the repricing of the balance sheet and that just walking up. We're up 15 basis points.

And that is just yield while others in the industry are falling. And that's just the efficiency of the balance sheet coming through. And so that has returns. We made $ 8 billion absent the charge. We made almost $ 7 billion with the charge of the second highest earnings of the group. And so there's a lot of momentum. Our consumer bank made $ 3.

5 billion.

Our commercial bank made $ 2 billion. Our wealth management company made $ 1. 5 billion and grew faster than the peers. And so there's a lot of good things around the Main Street side. And frankly, even on the market side, we had a $ 5 billion trading revenue quarter. Against our peers, it didn't hold up as well due to the fixed income mix. But the reality is it was one of the stronger third quarters we had in trading and investment banking.

We told people, three or four weeks ago to be 1.6 to 1.8, came out as 1.8. So, and again, that's a representative quarter. So we feel good about the franchise. The pipelines are full, et cetera. But it's that good core engine of NII that's growing at 8% when others are not coming close to that, that's driving our earnings forward.

As you know, this is against the backdrop of much higher interest rates, a real repricing in the bond market as well. There was some discussion in the last month, and to some extent it was hitting bank stocks across the board, Brian. To what extent would these higher rates eventually eat into net interest margins? How do you see the path to sequencing of things from here?

So if you have $ 2 billion of deposits, which you pay 149 basis points for, and rates go up, and you go up a lot less because a substantial part of those deposits are not interest-bearing. Higher rates are beneficial, except if higher rates are because something really is bad in the economy and that has other issues. But as the rates grind up, we will make more money. That's the nature of having a zero interest thing. When rates came down, that's what crunches you because we have the zero interest and you don't go below zero. So simply put, our exposure to higher rates is always positive. It's less than it is because we try to manage both the down and up. But the reality is, that we just told people what we thought was 5 to 7 with

a rate environment 12 months ago that was sort of flattish into 27. We now are saying because the rate increases, because we're seeing good core loan growth, core deposit growth, and having $ 2 trillion of deposits that are very advantaged, we can see we push it to 8% plus for next year, which will lead the industry, we think.

I was looking at the deposit growth, Brian. I'm not sure how well understood this actually is for people outside of your world, but the growth and the overall mix is heavily skewed to a non-interest-bearing account. When people talk about how sticky those deposits are and the threat of technology disruption in the next couple of years potentially pulling some of those deposits away, Brian, how do you think about things with that in mind?

Our customers in the customer's industry generally have the ability every single day to move their money to higher rate off-balance sheet money market funds, or even within the rates we pay for higher balance deposits and CDs. They could do that every day. The thing is, when you have their core operating account, that's the money in motion, so-called.

That's the money they're paying the household bills with. That's the money they're paying the car payment, the house payment. So that's running in and out. It's a big collective balance. We put the 40 million check-in customers around numbers we have and the commercial customers we have together. But the routing comes from a whole bunch of granular accounts, all of which is money in motion. The investment side money, we put in the market for the clients. And so even in our wealth management business, which by definition is affluent and wealthy America, it's $ 285 billion in deposits in that business. And a lot of it is priced to yield a higher rate for the customers. But a lot of it's core checking accounts. And so that is not

well understood. The way for people to think about it is pretty straightforward.

Companies.

People put money in transactional, have it for transactional purposes, and have it to make cash return on invested. The investment capabilities are there today to move it and stay in the seat. The transactional, you have to have a trusted person who's going to process all your different types of payments and be there and be open and not have issues around it.

And that's what our industry represents.

And that's why the good core deposit growth, the 200,000 new checking accounts this quarter, and in the eight years in a row of quarter over quarter growth in checking accounts, is really what drives a consumer business, and likewise in the commercial business, small business deposits, business banking, commercial banking deposits, and the operational work around them is a core to those companies, you know, cash management process, and that grew 10% year over year. So we don't, this is not a new concept that money can move to high-yielding things. The money market funds have been there for about 40, 50 years, so it's not a new concept. Even our balance sheet, we do CDs. It's just that we don't need the money,

so we put it in the markets for people.

The new concept, Brian, as you know, and I imagine you know where I'm taking this, is the agentic AI potentially instructing where those funds should go. Is there some operational wrinkles that you think need to be ironed out before we see those kind of things ramp up?

Well, the key is, if people give the credentials to the agents and they go in and transact and it doesn't do what you want it because they make mistakes and it's a massive, complex environment of which to operate, the question is sort of, okay, what happens next? And what we found in the past is every terms of bank has said you shouldn't let that payment go through.

And you're saying, but when you give the agent your credentials, it is you authorizing the payment. So we're just trying to work with these companies and with the industry to say, put a human being in a loop.

So before you pay.

You authorize it so that we know that you know you're paying for something. And that's a good way to manage that risk until The risk gets mitigated out by further development of the capabilities and stuff. But right now, if it makes a mistake, you're going to have a problem that people are going to raise their hands and say, this money went to X, misplaced the L-Payment or something.

We've heard already it didn't happen here, but it happened in other places. And they're going to say, it went to X, and they're going to come back and say, why'd you let that happen? You say, because it's you that made it happen. And so we're trying to get that straight. And then there's a whole other side of which is the scams and things like that that go on and now have a.

A capability which they can run 24 by 7. So it used to be constrained by a human being and a bot and things like that. Now it can run full time. And that we want to make sure people don't have their money drained. And that's why we're working closely with these companies to develop the protocols so that the human stays.

In the loop.

You can see how messy that could get quickly, and that's just at the application layer. The other mess people are talking about potentially is the build-out and the cost of the build-out at the same time. Brian, I caught up with a Fed official, a former Fed official, the former St. Louis Fed president, Jim Bullard, a little bit earlier this morning on Bloomberg surveillance, and he made the point that he thinks this build-out is a bubble that will eventually burst. Now, you've been more engaged in lending and financing this build-out over the last year, Brian. I just wonder where you come down on the debate about how sustainable this is, and how active you want to be with that in mind.

Well, we're active. We do a lot of transactions, but we focus on the individual transaction. Who are the owners of the assets? Who are the lessors of the assets? How does the cash flow go? Where are we in the capital structure? Where are we in the duration of the capital structure? So as a principal lender, as a person who puts money in line, or as an underwriter bringing it to the debt capital markets, we focus a lot on that. The reality is, at the end of the day, the success of all this is going to be dictated by where the revenues come from these companies.

They've had fantastic revenue growth, and it'll come from our ability. And so one of the challenges is, as we implement AI, we're going to spend roughly $ 300 million, $ 250, $ 300 million this year, 26, on AI initiatives. As we spend that money, we're getting good benefits out of it. The constraint on doing that, though, is if the models are going to create problems or not and not work right or jump the sandbox, that's a problem. So we're spending $ 100 million trying to remediate against the frontier model's impact on potential systems patching. So we're spending $ 1 out of $ 3 right now to make it simple to remediate.

And so this has got to work out.

So the reality will be when this question of what the final revenue stream from the corporate world will be dictated by, how good the models are, how much we can save using them, small, large, centralized, non-centralized agents, autonomous agents, assisted agents, all the different ways. That'll be one question.

The question is, what's the consumer model? Not as important to us because we don't engage in commerce. We engage in the payments around commerce. So we got to make sure we're present in the payment scheme. But, you know, the reality is that's what's going to determine the long-term efficacy of all this.

And that's still playing out.

And I think people having a point of view are judging by their opinion about what's going to happen. And, you know, I'm more certain just make sure we're structured right on the credit. Our team does a great job there. and make sure we're getting our value out of it. If that works, it should be very strong.

Stay with us. More from Bloomberg Businessweek Daily coming up after this. So a U.S.

Economic report today suggests the economy and, in particular... Price increases that are eroding paychecks will remain front and center for voters in the final stretch of the midterm campaign.

Yeah, the data we're talking about, U.S.

Consumer prices, they advanced in September at the fastest pace in five months. The gauge of underlying price pressures rose by more than expected. It kept the squeeze on household budgets ahead of those midterms. Let's bring in Mike McKee, Bloomberg TV and radio international economics and policy correspondent. Mike, I can't look at this today without yesterday's news about John Williams. And what he said about rates, as Carol mentioned earlier.

Should he have waited?

Well, okay, so just to.

If people didn't join us yesterday or didn't see the news yesterday, he said, okay, one more rate hike this year and then no more in 2027. Does this change the view about the stickiness of inflation?

It changes the maybe timing a little bit in the sense that this is one report. It did go back up. Inflation's going the wrong direction, not what the Fed wants to see. But does that mean it continues? We had... When you look at the headline, obviously in September, because the war went back on, we saw a big rise in energy prices. And that pushed the overall headline number up.

What's more concerning is that there were a lot of categories underneath that that were a little bit higher. So it was kind of broad-based. They'll have to decide. One of the things that they've talked about is they like it when there are two categories. CPI reports between Fed meetings. And in this case, October, there's only the one. So they'll probably say, if they decide not to move in October, they'll probably say, we want to wait for more data.

And they can do it in December. And I'm sure that President Williams will look at the additional data and have to decide.

Mike, if only, you know, a U.S. central bank had their own internal research group that can like... I mean, what does the Fed do on a regular basis with all of, you know, the folks that work there in terms of trying to get the latest and greatest data and information on things like inflation or the labor market?

They have a tsunami of information. It's been kind of funny because people have been talking about how they need to update themselves and get private sector data. They've got all that. For example, the... job numbers that we get on a regular basis. They have different companies providing them with different information and then they set it into their models and figure out what they're going to do about that.

Like ADP sells them their data. And there are a lot of retail companies that give them their data. So they're always looking at that plus the data that comes out looking backwards. And they're always working, as is just about everybody in this business, to refine it so it's the most up-to-date and gives you a look forward. But they've got a lot.

What about the Beige Book? Was there anything there that was interesting?

Wait, he's chuckling a little bit.

I'm chuckling a little bit because if you looked at the Beige Book, it was quite interesting. Given the CPI today.

Because it said, what, I don't have the headline in front of me, but it was half of districts reported price pressures?

Yeah. Three characterized prices overall as robust. Eight noted growth was moderate. And three of those eight noted that input price pressures were intensifying, if not growing robustly.

So taken together.

So you take the two things together, and basically what you're seeing is maybe what people had expected that a delayed effect from tariffs and the delayed effects of higher energy prices, for example, the diesel prices that then have to work their way into transportation companies and stuff like that, are starting to filter in.

I mean, the biggest surprise I have is that it's not more apparent. Because diesel is the backbone to at least the guns.

Well, a lot of that has to do, and there's some comments in here, too, about how there's one about consumer-facing firms noted tighter profit margins as price-sensitive customers continued to resist price hikes. And that's the thing, is that we got so used to low prices for so long that people don't want to pay more, and companies have been reluctant to raise prices. And I've been traveling, as you know, around the country recently and talking to a lot of business leaders, and they're all saying, we're kind of at the end of being able to absorb that.

Our margins are shrinking, and we've got to raise prices. It's just a question of how much they think they can get away with.

Well, it reminds me of our conversation with Meredith Whitney last hour. We spoke to her, and Carol asked the question, because we're always trying to figure out, like, OK, post-financial crisis, who are the actual customers of these big banks? And where's sort of like the bottom fifth of the economy?

who is struggling right now, going. And Meredith Whitney made the point that you can't really get a good view of the average consumer by looking at consumer spending via.

These big banks.

Because they will say consumers are resilient, but their consumers are prime. These are folks that are making more money and kind of in a higher economic class.

If you will. And so you don't get a clear picture, right? We know that.

Well, the other thing is we've seen a slowdown in average hourly earnings, average weekly earnings, and that's starting to have an effect on sort of more of the middle class. We're expecting tomorrow to get a retail sales report that shows a significant slowdown from August. You have to take that with a bit of a grain of salt because August is back to school and you've got to buy all the backpacks and clothes and stuff like that.

Pencils, erasers, all that good stuff.

But.

there is maybe an optimistic view about holiday spending this year that might turn out not to be justified if people are starting to feel really bad about the economy and at the same time feeling like their incomes are not going to be going up.

In the Beige Book, most Fed districts in the Beige Book said their economies grew somewhat during the survey period, though there was little to no change in overall employment. Eleven districts reported at least some growth in wages, with several noting that inflation was spurring further pressure on pay.

One of the things I want to ask you, too, is the reality of growth. David Rosenberg was on with Tom Keene on surveillance this morning and talking about, in his view, economic growth not so great in the United States, and he was making the distinction between nominal growth and real GDP. Is he right that growth isn't so great?

I wouldn't say he's right. I didn't hear it, so I can't comment exactly on what he said. But growth has been around 2%, and the potential growth rate for the United States is around 2%, half a percent on either side, depending on the quarter you're in. And if you look at some of the components of growth, Then he has a point because right now so much of it is being pushed by AI.

Exactly.

But we've still seen up to this point resilient consumer spending. So the question is, does that drop off and leave us with only the AI? Other aspects of it have worked against us. Trade has worked against growth because we've been importing so much and so much of that is AI stuff. But the numbers just subtract it from growth.

and then the administration is bragging about how much it's cut defense spending, that might turn around because we've got to buy some more missiles.

The administration wants a trillion and a half.

Yeah. Squeezing out a lot of other stuff.

That's spent over a long period of time. But we are seeing issues in the components of growth.

But to be.

Fair, and this is something we talked about with Meredith Whitney as well, I mean, if you take out the AI spend, if all of a sudden that starts to slow down dramatically and go away, it's also created an incredible wealth effect That's something Meredith pointed out in the equity trade, right? And certainly has made those who are much more affluent feel comfortable about maybe spending more.

If that goes away, what happens to the economy?

I would hesitate to use an adjective, but I think we would definitely see a slowdown in the overall economy. Recessions are always a question of confidence, and I'm not predicting a recession at all. But if people lose confidence, then they stop spending. And if they stop spending, then companies start cutting back. And that's how you get into the downturns. And so the question is, how... How would this play out if we started seeing a cutback? Now, there are so many contracts signed for data center construction and so much has been ordered that it would probably take a while for that pig to get through the python and for the spending to stop. But it obviously, if we start to see major declines in the stock market,

as you mentioned, it's the wealthy who are really doing well from the stock market gains. But Americans tend to look at the stock market and say that's a measure of the economy. And so they might pull back as well. It might be a psychological sort of weight on them.

Stay with us.

More from Bloomberg Businessweek Daily coming up after this.

Asml holding raising its sales forecast for this year and is seeking and kind of struggling to increase production of its chip making machines to keep up with soaring ai spending so What do we need to know?

How do these AI pieces and comments fit together?

The man responsible here at Bloomberg Intelligence doing all of this is Mandeep Singh. He's global head of tech research at BI. He joins us in studio. I'm not quite sure where to begin, but let's start with Jensen and maybe what stood out for you. Because it does feel like people are like, yes, we should be careful. We should be careful, but let's keep going, certainly in terms of growth.

Yes, and NVIDIA, as we know, has guided for 70% growth next year. At their level, you know, there is no scope to miss the numbers now, given the guidance that they have given. And, you know, with Anthropic talking about tracking on distillation and, you know, doing the things.

to slow things down.

All these model providers said they want to slow down AI development. That's not good for someone like Nvidia. So I can see why Jensen is a proponent to keep this going.

Hold on, hold on.

You're saying the guy who makes the chips and then sells them to the companies that are building this technology, whose entire business depends on people buying more of these chips.

Saying go, go, go.

Saying go, go, go. That's what you're saying?

I mean, at the same time.

Hold on. Hold on a second.

Look, his pitch.

Is we have come a long way over the past 12 months, which we have. I mean, look at where these models were 12 months back and where they are now in terms of reasoning.

So then where will we be in 12 months?

It sounds like we are hitting some sort of plateau when it comes to the pace of model development. You could say it's because of the OpenAI Hugging Face incident, the agents going rogue.

He talked about developing this in a safe way.

There is a tacit acknowledgment that we have come a long way, but we probably need to slow down because there are risks involved. From that perspective, when I look at the chip demand, right now it's driven by the fact that agentic AI uses a lot more tokens than the chatbot era we were in since the ChatGPT launch.

And if that is the key driver, then I think we still should be fine in terms of, you know, whether it's Nvidia's chip sales or the, you know, the core reefs, the neoclouds of the world where right now they're under pressure today, you know, with the yields going to 15%.

So that's some nervousness. But when I look at the fundamentals.

They are strong and backed by the token usage that will come from agent tech AI. And so from that perspective, I do think, I mean, we have to wait for hyperscale CapEx guidance when they report 3Q numbers, but overall, the fundamentals are still pretty strong when it comes to the AI trade.

And then you've got ASML, right?

Which raised its sales forecast for 2026, but it's struggling to increase production. I also just, and I feel like you remind us, like being smart, like when they raise their sales forecast, is it because things are more expensive or because they're actually either shipping or getting orders for more stuff?

And I think you often say it's a little bit of both.

It is both.

And right now it's skewed towards things getting more expensive. So just because, you know, they are getting more sales doesn't mean that capacity is growing, which it sounds like in the case of ASML, they are also saying capacity won't grow because of the limitations, the components and.

All that stuff.

But at the same time, you know, it may be a good thing that we stretch this cycle out. You don't want to pull forward everything to the point where the numbers get so hard that the comps, you know, the year after, 2028 comps would be so hard that, yes, there will be a natural decline. So it's a good thing that the cycle is getting stretched and we won't have, you know, tougher triple-digit comps that will be hard to beat.

I love that we're talking about 2028 because that means that the— AI will not destroy us before then. If we're talking about confidence.

I think we'll do it in a safe way.

Okay.

Oh, we'll destroy it in a safe way.

Now it feels so much better.

That's good.

Anthropics investor briefing today. And I think we keep looking.

I don't know that we know anything yet, but what should we maybe get?

Or I don't know. How are you thinking about Anthropic right now?

So you look at their ARR run rate, they started around 9 billion ARR in January. Now they are 65 billion based on the latest numbers.

Unbelievable.

And some people were speculating they've actually hit 80 billion plus because they seem to be adding like 10 billion monthly ARR. This has been unheard of. So now that they're talking about cracking down on distillation, Some of that ARR was coming from Chinese companies who were using their models for distillation.

Right.

And that's where the concern is, is it going to slow down the new ARR growth?

Yeah, can you explain distillation?

Yes, please.

Distillation is, let's say, you know, any Chinese model using Anthropic's latest models, calling, you know, it multiple times in a day to get responses, which it uses in turn for training.

Oh, got it.

That's essentially what it is.

To help its model.

To help its model, the output of entropics models are fed as training feed to the models that they want to train on.

That's a no-no, right? Or is it not?

It doesn't seem like a great thing for the ecosystem.

Model providers don't care right now, at least so far, how their model was being used.

They were like, you're calling our APIs. We get paid. We don't know how it's.

And that's where there were concerns around cybersecurity or distillation.

So now they are cracking down on it.

So the distinction is now starting to be made. But don't worry, we have two more years before we get destroyed.

Mandeep, we're all moving in with you. When it happens, it's going to be in a nice way.

Stay with us. More from Bloomberg Businessweek Daily coming up after this.

You might remember late last month, this was just a couple weeks ago, we had an in-depth conversation with Bob Chapek. He spent decades at Disney. He succeeded Bob Iger, only to be ousted and then replaced by Bob Iger.

Not easy.

No.

That's a unique situation. Check out the interview if you missed it, though.

But it's interesting.

You often see this, whether it's a founder of a company, someone so iconically affiliated with a company. Think of Howard Schultz coming back to Starbucks. That they are sometimes brought back, what you would call the boomerang CEO.

Yeah, Rob Katz is someone who comes to mind. He's once again running Vail Resorts after taking a few years off.

Kevin Plank. Kevin Plank at Under Armour. Yeah, he's back.

All right, so we have two guests to get into the boomerang CEO, but really also talk about what leaders are facing in today's environment. Delighted to have with us Jeff Sanders. He's vice chair and co-managing partner of Hydric and Struggles, also with us.

Is Kelly O'Keefe.

He's partner also at Hydric and Struggles. They are also the author of a book, and they brought it along with us, Show Up to Win, How to Land the Leadership Role That You Want. And they join us in our Bloomberg Interactive Broker Studio. Let's talk about the boomerang CEO and how often when you're talking with a company, and Jeff, let's maybe, you know, you talk to a lot of boards, a lot of CEOs, you know, this is your real house. How often do they want to kind of lean on someone that was at the company?

There's some very high-profile examples where it occurs. You cited some. UnitedHealthcare is another one where it occurred recently. Usually it's a company where the board feels like they need a steady hand. They also turn to people that have transformed those businesses before.

To try and redirect them.

I mean, the other thing, and you pointed out founders, we're also seeing it with some of the pre-IPO companies or privately held companies where- Like a Sam Altman who was out for like a day and then was back. I wasn't thinking so much of that. But you see examples where maybe it's time to reinvent yourself. And you've hired a CEO who's been there for incremental growth. It may have been big incremental growth, but it hasn't been reinvention.

So we're also seeing situations where people are bringing in founders in technical environments.

In the environment, though, of AI- And things are changing rapidly. Do companies, though, feel like it's better to go with a name they know or somebody who kind of understands the changes, bringing in somebody new?

I think a lot of it, and Kelly and I were talking about it earlier, I think a lot of it's about risk management. And it's trying to figure out risk-reward on these things. And so what I think a lot of these companies are trying to solve for in this environment is one with the pace of change across all companies right now, particularly in software businesses and technology businesses, it's who's going to have the lowest learning curve on the market. If it's going to take you 12 to 18 months to get up to speed, it's too long.

Kelly, come on in here because in the software space, we've seen it.

Even the narrative that we've had as a result of the AI impact, tell us what you're seeing and hearing.

I think Jeff just said it.

The fact is if you make a bad leadership hire in this market at the pace of change and innovation that's happening, you've lost more than a product cycle because it typically takes 12, 18, 24 months to decide if you've made a bad hire. Then it takes another 12, 18, 24 months to to bring the new CEO up. You can imagine what the competitors are doing.

You missed a couple cycles.

Yeah, there you go. Okay, can we talk about the juicy stuff?

Let's get into it.

Okay, we have this.

Cool feature on the Bloomberg Terminal when it comes to publicly traded companies.

I thought it.

Was going to be Bravo and Housewives.

No, Executive Compensation.

You guys are in this stuff each and every day because you're negotiating this and getting an understanding for it on.

Behalf of the folks who you're working with. What's going on with Executive Compensation? Well, I think it depends on the sector, right?

I mean, you're seeing right now in Silicon Valley with some of the AI compensation packages that are coming out. First of all, they're taking a lot of people that would be CEOs of other businesses and getting them into functional roles because they want to be with the biggest, the most impactful companies out there.

So somebody who would be a CEO of a different business would be not mid-level, but an executive level manager at another business.

Without a doubt. Running a major division, running a major function, doing things like that.

And being paid handsomely for it. Without a doubt.

Yeah.

And for technical talent right now, you're seeing astronomical numbers. I mean, CEO pay at some companies. I mean, you're seeing some really individual contributors that can make 10 to 15 million.

What kind of technical talent?

We saw that with tech, like with Apple sort of losing employees to Meta, for example, last year, this was a really big story. I mean, pay packages that were, as Mark Gurman put it to us, like life-changing generational wealth creating packages.

Yeah.

I think you've got two things going on.

One is you have some companies with the threat of AI that are going through multiple compressions.

So their stocks are down, even with good performance.

And so they're having to put in retention grants because a lot of their talent is under siege from some of the next-gen AI companies.

Yeah, Tim, the other thing you're seeing is some of it is about compensation, but some of it's also about the terms that these executives negotiate, whether it's vesting schedules, whether it's non-disclosures, non-competes. There's a lot of terms. in addition to compensation, that they negotiate up front. And obviously, the more success they have and the less risk they have, the more they can negotiate.

Or the golden parachutes, as Carol always reminds us.

Well, you negotiate your out package as you're coming in. I mean, I feel like that's become the standard, has it not?

It depends on the level of the person. For CEOs, I would say a lot of that is standardized for most other people in the company.

Can I ask you something?

In a world where we as an organization, we as someone who watches the markets and the economy and had a conversation just earlier and it comes every day about the K-shaped economy and the gaps that we're seeing between leaders and the C-suite between their workers with.

Companies that are uber profitable.

Does that come up? And your conversations, does it come up in leaders? And Kelly's smiling, but I'm curious where we want to go.

Because I do wonder about this.

I would say it definitely does.

And the dynamic I just mentioned where for the very best people, they're being bet up in the markets. A lot of times these boards don't have a choice. And if you wind up with a lesser CEO, a lesser head of sales, a lesser number two, everyone's going to lose. And so I think it's definitely... something that they think about.

I'm just not sure there's an easy solution for it.

Yeah, I don't know if there's an easy solution for it. One of the things that we're seeing from a flow of talent standpoint, Carol, is you could imagine most innovative companies right now are sort of hoarding the best talent. They're recruiting and hoarding the best talent, which means that everybody else is left with what else is left. I mean, that's kind of the reality in this market. And those most innovative companies could be big or they could be small, but they're really... demanding a lot of the best talent.

One thing that we're trying to figure out in this era of AI, Kelly, is the question about what is the right thing for the next generation of leaders to understand and to master? And we think about technology and like, okay, well, 15 years ago, everybody said learn to code. Well, okay, no, don't learn to code because cloud code can do it a lot better than you can. From a management and a leadership perspective, what does a young person need to know about what they need to learn?

Yeah, it's a really good question, Tim, and I'm glad you asked it because what we said on stage last week at our global conference, one of the biggest surprises that Jeff and I have gotten in the two months that the book has been out is how many leaders have called and said, hey, listen, love the book, but I bought it for my kids. to your exact point, which is fascinating when you think about it because, I mean, this book was written for the market we serve, which is senior executives at the peak of their career. But the reality is many of those principles and many of those themes in the book apply. Jeff and I have kids, just like we all do, early adults, early in career.

And I will say my kids read it, as did Jeff's, and the feedback, they got a lot out of it. So the things, Tim, to specifically they're going to need to learn self-awareness, all the things that we talk about senior leaders need to learn. Self-awareness, humbleness, agility, adaptability, they're gonna need to learn to work well with their colleagues.

I was hoping he was gonna say just liberal arts.

Yeah, well, I think it is coming back.

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